Who contributes ?

Today’s graph from the Financial Times shows the share of European households that are net contributors to the State — paying more in taxes than they receive through transfers and public benefits.

The striking point is that, in most EU countries, a majority of households receive more from the State than they contribute. In Italy and Greece, only around 40% of households are net contributors, partly reflecting generous pension transfers to retirees.

This raises a fundamental question for Europe: how sustainable is this fiscal model as populations age and the ratio of pensioners to workers continues to rise?

Ultimately, public finances depend on a sufficiently broad productive and taxable base. Demographics suggest that maintaining the current balance will become increasingly challenging.

A little food for thought for the weekend.